Stock trades and realized gains/losses

[Herbert Thoma]

Matthew Vanecek schrieb:
<...>
> > Matthew Vanecek <mevanecek@yahoo.com> writes:
> >
> > > come to as well.  That conclusion is that we should be tracking the
> > > dollar amounts of securities, relegating the quantities to an ancillary
> > > position (e.g., part of a Lot).
> >
> > There is a clear tradeoff here.  Which do you want to be easier to
> > see, the current dollar-value of your holdings or your realized
> > gains/losses?  The problem is that when you track the dollar-amount of
> > stock transactions you have to perform a lot of work to determine how
> > many shares you currently own.  That means calculating Current Net
> > Worth is a lot of work.
> >
> 
> I want to have a clear view of realized gains (loss) in my accounts.
> The current dollar value of my holdings fluctuates hourly, in the
> current economy.  Sometimes minutely.  Current value of securities
> should be calculated in a report.  Recorded value of securities should
> be fairly static.  Except in the case of other than temporary changes in
> value, of course, in which case an adjustment should be made and the
> offset recorded in UN-realized gains/losses.  The value of a purchase
> should never change in the account itself, without an adjusting
> transaction.  That's just wrong on one hand, and violates GAAP on the
> other.

I stated that I could live with Dereks version of LOTs in an earlier mail,
but I still would like realized gain/loss in income/expense accouts better,
so I support Matthews point of view here.

<...>

> 
> Which is really how it should be anyhow, IMO.  My Ameri-centric
> understanding is that when you buy stock from an exchange you pay for it
> in the exchange's currency.

There are stocks that are listed at more than one exchange. I can buy shares
of Siemens in Frankfurt for EUR and sell them in New York for USD.
(This is no ADR, it's really dual listing)

> > > easier when generating reports--there is no longer a need to run through
> > > many Lots to get a total of realized gains/losses for a period.  You can
> > > see at a glance the dollar amounts for gains/losses and current invested
> > > amount.  Net worth calculations are also simpler to implement.  Also,
> >
> > Ok, I'll bite.  How are net worth calculations simpler to implement?
> > Right now all you need to do is get a current price on all your
> > commodities and then perform a multiplication across all your
> > accounts.  How does your method make it any easier to track net worth?
> 
> Net worth is not calculated based on the current value of shares across
> accounts, but rather it is based on the purchase cost +/- adjustments
> (i.e., the running balance of the asset account, same as in other
> accounts).  You don't have to do the price retrieval, nor the
> multiplication.  There could be an option, perhaps, allowing for use of
> current price.

For business accounting we had a principle here in Germany called
"strenges Niedrigstwertprinzip". It meant that you had allways to
adjust to the lowest price. This is a kind of worst case accounting.
The principle got weakened lately. Now you only have to adjust when
you think the low price will remain for a longer period of time ...

> I'm not opposed to having an account per security--mainly because I
> don't have enough to make it annoying.  That rapidly becomes unscalable,
> though, which is why I would prefer to be able to enter investment
> purchases in a single account, or an account per exchange.  It's
> probably simpler to (re)implement it as a stock-per-account, though,
> because with the addition of 1 field (stock balance) and a few methods,
> we can track both the share balance *and* the purchase balance.  Which
> is what I had in mind when I suggested a StockSplit subclass above...

I would certainly prefer one account per stock.

> > > Accountants generally are more interested in dollar amounts, not number
> > > of shares (I've seen many questions from Gnucash users about how to get
> > > info in a form appropriate for Accountants).  And to retrieve the number
> >
> > Well, sure, the Accountants want this information..... once a year!
> > The rest of the year I want to know "how well is my portfolio doing,
> > and what is it worth?"  Shouldn't we optimize for the "likely"
> > operation, not the once-a-year operation?
> >
> 
> If you want to know how your portfolio is doing today, you bring in the
> current price and run a report.  If we're able to subclass Split, the
> point is moot.

I tend to agree. It is not absolutely neccessary that a stock register uses
the priceDB to show current value. This is only neccessary for the portfolio
report.

For the balance-sheet report I think we need two flavours:
- accountants view: show value of stock accounts (using pruchase price
                    or expicit adjustments)
- Joe Users view: show share amount multiplied with current price from
                  priceDB (what am I worth right now?)

<...> 

 Herbert.
-- 
Herbert Thoma
FhG-IIS A, Studio Department
Am Wolfsmantel 33, 91058 Erlangen, Germany
Phone: +49-9131-776-323
Fax:   +49-9131-776-399
email: tma@iis.fhg.de
www: http://www.iis.fhg.de/